Making it in Massachusetts

October 11, 2012

Reports of the death of manufacturing here, and across the country, have been greatly exaggerated. There is no going back to our industrial heyday, but a new study says manufacturing has a solid future in Massachusetts. In fact, one of the biggest concerns is a possible shortage of trained workers.

When the great recession battered employment across the country, manufacturing jobs—already on a decades-long slide—took a big hit. In Massachusetts, of the 300,000 manufacturing jobs the state had in 2007, nearly 50,000 disappeared. But a new report on manufacturing in Massachusetts has some good news amidst the recession gloom.

The study, commissioned by The Boston Foundation and led by Barry Bluestone, dean of the Dukakis Center for Urban and Regional Policy at Northeastern University, found that manufacturing employment in the state has largely stabilized since 2009, while the sector’s productivity and output have increased markedly. Add to that an aging manufacturing workforce, and the report projects that there will be 100,000 job openings in the sector over the next decade. Indeed, one of the major conclusions of the study, based on a survey of about 700 manufacturing firms and interviews with nearly 60 company CEOs and managers, is that the state must ramp up its education and training pipeline to ensure an adequate supply of skilled labor to meet the looming employment demand.

The report is a follow-up to a 2008 study, titled “Staying Power,” which was completed just before the recession began pummeling manufacturing. “Manufacturing in Massachusetts has survived the Great Recession and, if anything, appears to be in a better position today than in 2007 to prosper into the future,” says the new report, “Staying Power II: A Report Card on Manufacturing in Massachusetts 2012.”

The encouraging news comes amidst a wave of national attention to manufacturing. Studies suggest we may be at an important pivot point that is changing longstanding assumptions about the inexorable decline of manufacturing in the US as industrial activity explodes in China and other lower-cost economies. A report issued last year by the Boston Consulting Group projects that, by 2015, fast-rising wages in China, huge productivity gains in the US, a weak dollar, and other factors will combine to “virtually close the cost gap between the US and China for many goods consumed in North America.”

The federal government has launched an advanced manufacturing initiative, and the state followed suit last year with a Massachusetts-focused effort aimed at boosting the state’s high-end manufacturing industry. In September, in conjunction with the release of the new Northeastern University report, state officials announced a new promotional campaign to make young people, schools, and families aware of opportunities in manufacturing, where the average worker earns $75,000 a year.

The report was released in September at an event attended by Gov. Patrick and other state leaders at AccuRounds, an Avon-based precision manufacturing firm. The company is owned by Michael Tamasi, a leading industry voice involved in efforts to sustain and grow manufacturing in Massachusetts. Bluestone, meanwhile, has more than just an academic interest in American manufacturing. He grew up in Detroit and his father was top official in the United Auto Workers union.

I sat down to talk about the future of manufacturing in the state with Bluestone and Tamasi at the Dukakis Center offices. What follows is an edited transcript of our conversation. — MICHAEL JONAS

COMMONWEALTH: When talking about the manufacturing sector here in Massachusetts some people might say, “What manufacturing sector?” Give us a sense of manufacturing here today.

BARRY BLUESTONE: During World War II, Massachusetts had over 800,000 workers in manufacturing, about 43 percent of the workforce. It was actually a greater share of jobs in Massachusetts than in Michigan. After the war, of course, much of that employment declined, and then we had a sharp decline until the mini-computer boom [in the 1970s and 1980s]. For about 15 years, we were able to maintain our employment. After that we had a sharp, sharp decline, to the point where in the early part of the last decade, from 2000 to 2006, we were losing 15,000 manufacturing jobs a year. Nonetheless, today we still have a quarter of a million people in manufacturing. And, indeed, we’ve had about that level for the last two-and-a-half years, despite the Great Recession. In fact, this is one of the longest periods of time with no decline in manufacturing since the 1970s. Those 250,000 workers are all over the state. They’re in a range of industries. It’s not just high tech, it’s plastics extrusion, it’s metal cutting, metal bending, it’s medical devices. It’s still food, beverages, and, of course, aerospace, computers, and electronics. So it’s a broad-based industry. The way I like to say it is that there was no doubt that we’re going to lose a lot of manufacturing that simply couldn’t compete any longer in a global economy. What’s left here, however, is very competitive and very solid, and will survive for the long run and possibly even grow.

CW: You’ve studied manufacturing in the US for many years, and for much of that time hasn’t it been a pretty grim story?

BLUESTONE: I wrote a book in 1982 with my late colleague Ben Harrison, calledThe Deindustrialization of America. It was written by a kid who grew up in Detroit and a kid who grew up in Jersey City, and we were watching our cities fall apart. That was a sobering experience, and most of my academic work has been about the decline in manufacturing. When we started our first report on manufacturing in Massachusetts in 2007, I fully expected to find an industry that continued to decline and that might disappear in the next two decades. So I was more surprised than most with what we found. The research for the original “Staying Power” report was completed in November 2007. The report suggested that after decades of declining employment and shrinking of shared state output, manufacturing in Massachusetts was gaining strength. But only four weeks after the research for the report was completed, America slipped into a recession. By July 2008, the economy was shrinking and unemployment was rising rapidly. Led by the auto industry, manufacturing was in free fall. Our forecast of a manufacturing renaissance very soon looked way too sanguine. We considered offering the advice of [Saturday Night Live character] Emily Litella —”never mind”. When we did this new assessment, I wasn’t sure what we’d find. Employment had fallen much faster than we thought. The Great Recession in many parts of the country continues, though things are a little bit better here. Then we looked at all the data and we come to the conclusion that we were not that far off in 2008: Though manufacturing was hit hard in the meantime by a very bad recession, it has largely stabilized and there are some very healthy signs about its future.

CW: There was a real shake-out, though, that occurred at the time of the recession.

BLUESTONE: Absolutely. It’s been a continuous shake-out with the exception of that mini-computer boom.

CW: You wrote in the new report that the manufacturing industry has not only survived the recession, but it’s in a better position today in some ways to prosper than in 2007. What’s that based on?

BLUESTONE: We’ve had tremendous improvements in technology. The firms that have survived are using the latest technology and are creating state-of-the-art products. Those products not only have a market here but, increasingly, a national and international market. And so they’re in a good competitive position, both nationally and internationally.

CW: So in some ways we’re in a strong position because there’s been kind of a Darwinian culling of the herd in manufacturing?

BLUESTONE: Exactly. Those who couldn’t make it, didn’t. The report says if we had continued to decline at the rate taking place from 2000 to 2006, the last manufacturing job in the state would disappear in the spring of 2025 or something like that. That’s not going happen.

MICHAEL TAMASI: More recently, in the last two to three years, we’ve started to see a reshoring effort, believe it or not. Work is coming back to this country. In my company we’ve seen work come back from Europe to the United States. Also, the cost of living increases in China are accelerating at a much faster pace than we ever anticipated. A report last year stated that by 2015 they’re going to be on par wage-wise with the US. That’s decades sooner than we ever thought. And our innovativeness and our creativity has taken over. In the first manufacturing report [in 2008], Barry said manufacturing had the “Rodney Dangerfield syndrome.”

CW: Meaning what?

BLUESTONE: Meaning that we just didn’t get any respect. People really didn’t truly understand what manufacturing was all about. You know: dirty, dark, dingy, oily. Those days are gone, long gone. If you have that type of environment, you’re out of business.

CW: So what’s the picture today?

TAMASI: The picture today is state-of-the-art technology, ultra-clean facilities, with technical talent far superior to most places in the world. And we have a lean manufacturing system that overlays our production facilities. By integrating all those activities and having involvement and empowerment and teamwork, you’re able to do great things. You can outperform the rest of the world if you attack it the right way. And we’ve been successful doing it. We’ve tripled revenue and doubled employment in the last 10 years at AccuRounds.

CW: How many people do you employ?

TAMASI: Right now we’re at 72. We’re generating revenue at a rate of $11 million a year right now, and our target is to double that over the next five years.

BLUESTONE:: Our best estimate of what has happened to productivity in the Massachusetts’ manufacturing sector between 2007 and 2011 has been almost 9 percent growth in output per person-hour, per year. And so what you have is rising wages abroad [principally in China], rising productivity here. Rising productivity offsets your wage costs. In terms of employment levels, it’s a race between how rapidly you get productivity increases and how fast you’re increasing your sales. So if you can triple your sales, you can have that kind of boost in productivity and still increase employment. That is what is very exciting. In the past, I think what happened is we were boosting our productivity, but we were not boosting our revenue, our sales. And therefore we just needed fewer workers. Speaking as an economist, the productivity is absolutely critical in order to remain competitive. But in order to not just boost revenue and the share of output in the manufacturing sector in Massachusetts, but to boost employment, you need to have a real significant national and international sales effort. And that’s what we’re seeing.

TAMASI: But because there hasn’t been attention on manufacturing, and a lack of people interested in being trained to come into our industry, a huge number of replacement workers are going to be needed over the next decade or two.

BLUESTONE: 100,000 just in Massachusetts over the next ten years.

CW: The report talked about a graying of the manufacturing workforce.

BLUESTONE: In 2000, 40.5 percent of the manufacturing workforce in Massachusetts was age 45 or above. In 2010, it was 54 percent. So you’ve got a huge number of people who are going to retire soon. You also have people who are in the industry for awhile and then leave for other sectors. So we estimated that, between retirements and normal turnover, about 98,000 jobs will open up between now and 2022, or about 9,800 jobs per year.

CW: There’s now a need for a really robust training and talent pipeline. How can companies address that?

TAMASI: Companies need to be involved. Our company and a lot of companies in our associations have gotten into the middle schools, high schools, voc-tech schools, and tried to get the word out that there’s a great opportunity for a nice living if you like to work with your hands or you have an engineering mind. The governor appointed me to the STEM advisory council for the state a couple years ago. We’re very focused. I’m the co-chair of the public awareness subcommittee. We’re focused on 5th to 8th grade students. There’s a STEM [Science, Technology, Engineering and Mathematics] summit at Gillette Stadium this fall. We’re getting respect finally. There are stories almost on a daily basis that I read locally and nationally that are positive about manufacturing, versus the negative that we’ve been reading about for the last 20 years.

BLUESTONE: From the point of view of somebody who’s concerned about the workforce, you have, on the one hand, this recruitment challenge that Mike and virtually all of the other manufacturers face. And it’s a little harder here than in the rest of the country because our manufacturing sector is more technologically savvy. If you take a look at the US versus Massachusetts, in the US, 16 percent of the people in manufacturing work as managers of some kind. In Massachusetts, it is 21 percent. Nationwide, about 55 percent of the manufacturing workforce is classified as blue collar. It’s only 42 percent here. So we’re using more people with engineering and science backgrounds. But at the same time, unlike some other sectors that have been growing, where everybody says, well you have to go to Northeastern or Harvard, most people in manufacturing don’t need to do that. In fact, our best estimate is that in Massachusetts, close to half of the [manufacturing] workforce will require no more than a high school degree, about 14 percent will require some college but less than a BA, while about 20 percent of the jobs will require a four-year degree or more. That’s very different than finance or advertising or other fields. About half of young people in this state don’t get a four-year college degree, so here is a chance for young people to get very good jobs at good pay with good benefits. Manufacturing is our fifth largest employer. But if you look at total payroll, it’s second to health care because the pay is so high—an average of about $75,000 a year.

CW: In terms of the talent and training pipeline, President Obama, in his State of The Union speech in January, made a big pitch for the revival of manufacturing in the country.

BLUESTONE: He mentioned manufacturing eight times.

CW: And then in July, there was a report on advanced manufacturing issued by the President’s Council of Advisors on Science and Technology. In terms of this challenge of training the next generation of workers, the report refers to the country’s community colleges as the “sweet spot” for this. Your report raises some troubling indicators about that for Massachusetts. When firms here were asked where they look for this talent, 38 percent cited the state’s vocational-technical schools, but only 13 percent cited community colleges. Are they more of a sour spot than a sweet spot?

BLUESTONE: As we know, the governor’s got a commission looking into this. Richard Freeland, who’s the commissioner of higher education, has focused his attention on this issue. We need to rethink what the role of the community college is. And it could play a much bigger role in this industry. I think in the past, community colleges were thinking, well, this industry is dying or dead. We don’t want to waste our time training people for this industry, we’ll train them to be health care workers or whatever. I hope our report wakes people up. Even some vocational high schools have closed down some of their manufacturing, and we need to suggest to them that’s a mistake. This is a great opportunity for parts of the state that have been left behind.I think the governor is on board with that. I think the Department of Education understands that now.

TAMASI: The community colleges are a huge opportunity. Quinsigamond Community College [in Worcester] put together a great program years ago, and they did it with the collaboration of local industry. A need existed specifically for precision machining talent and engineers. They took their engineering enrollment from under 200 to over 600. So they addressed a need, they put a program together in three different languages—in English as well as Vietnamese and Spanish. The Advanced Manufacturing Collaborative, which I’m on the executive committee of, is taking that model and looking at the seven different STEM networks across the state, and kind of partnering that up and tailoring it to each region with the community colleges and local businesses. So we’re pretty excited about that.

BLUESTONE: Part of the reason I’m so excited about manufacturing is it’s employing people who are new to Massachusetts. Twenty-six percent of the workforce in manufacturing in Massachusetts is foreign-born. That’s compared with 18 percent in the rest of the economy. So this is a sector which has provided tremendous opportunities for people who are coming here. Massachusetts is booming around Greater Boston, but the area outside of [Interstate] 495 still has some real problems. The Springfields, the Worcesters, the North Adamses, the Holyokes. The other thing that is exciting about manufacturing is a large part of it is outside of 495. This is part of the way these older industrial cities, or the Gateway Cities we talk about, are coming back. What’s exciting is these were older industrial cities that were declining because of the decline in manufacturing. If we’re correct, and manufacturing is coming back the way we see it, this is a great opportunity for the growth of parts of the state that have been left behind relative to Greater Boston.

CW: But it’s not going to be textile and paper mills.

BLUESTONE: It will be some of that. Down in New Bedford you’ve got some very high-end textiles and some apparel. It’s not going to be all biotech. It’s going to be the kinds of things that Mike builds in his shop. Plastics extrusion is growing rapidly as companies move from, as I like to say, making plastic flamingos for your lawn to medical devices that you see in every hospital. This is what excites me.

CW: So the guy was right who told Dustin Hoffman in The Graduate that was the future?

BLUESTONE: That’s right, plastics. When I look back and I see what built the middle class in America, it was manufacturing. And the reason for it is you can take people with modest education but often reasonably good skills and get them jobs that pay them a middle-class living. In the 1950s, Detroit was the single richest city in America because of that.

CW: But we’ve been told—and we’ve been telling our kids —there’s no future in factories, and there’s been this huge college push …

BLUESTONE: You have to go to college, and if you don’t you’re life is ruined.

CW: Right.

BLUESTONE: That’s not true. It’s terrific that I have tenure at Northeastern and they can’t easily fire me. As a result, I feel fairly safe saying we sometimes spend too much time thinking about Northeastern and Harvard and Brandeis and BU. We have to think a lot more about our vocational schools and our community colleges. Because they can play a critical role in the next era of economic growth in the state.

TAMASI: We all want our children to do well and go on to college and do great things. But there’s a large population that will never go to college, so what are they going to do? We have to pay attention to them. There’s a huge opportunity in manufacturing. Most of the people that work at AccuRounds right now came out of a voc-tech high school education. And they’re doing tremendous work. They’re working overtime, they’re getting paid quite well, they have good benefits.

CW: You’ve said there won’t necessarily be growth in manufacturing employment. Walk me through why you think that.

BLUESTONE: In 1900, something like 30 percent of all Americans were farmers. Today, because of enormous productivity advances, it’s 3 percent, feeding a population that is three times larger. In manufacturing, we’re still projecting that, despite very rosy expectations that productivity will continue to grow at a rapid rate, there will be only slight reductions in the size of employment. On the other hand, we saw actually an increase in the share of total economic output in the state attributed to manufacturing. It’s up to about 12 percent from 10 percent. It was falling, falling, falling, and in the last two or three years it’s been growing again. Nonetheless, unless there is an absolute explosion in sales and revenue, it’s hard to see a huge net increase in employment. But if we’re roughly correct, that we are going to open up 100,000 job openings, our problem is not going to be unemployment in the manufacturing sector. Our problem is going to be finding enough well-trained, appropriately-skilled workers to fill those positions.

CW: We’ve talked about the talent pipeline. Mike, what are other concerns in terms of costs of doing business, whether it’s employee costs, taxation, regulation?

TAMASI: Other than finding skilled labor, which is our number one concern, the next one on the docket is health care costs. As a small manufacturer, we see double-digit increases in health care costs. Right now, we’re paying 65 percent of our workers’ health insurance costs, so our employees pick up 35 percent, so I think what we pay is a little better than the norm.

CW: Where do things like corporate income tax, corporate excise tax, and things like that fit in?

TAMASI: Workers’ comp and some of those things—they’re part of doing business. We’d all like to see them be less. We understand the state’s fiscal responsibility to every resident, so we want to do our part. But when things don’t get used for what they’re supposed to get used for, that becomes a concern. For example, the workforce training fund grant. We contribute to that, and thankfully it still is in place and funded. But when there’s talk about stopping that or using it for other things, well, the employees pay for that, a small percentage of every wage paid. That should come right back to us. And we just received a workforce training fund grant to the tune of $70,000, which we’ll match with $100,000 towards wages and other compensation for people coming in to train our workers.

CW: Along with the federal government, state government has launched an advanced manufacturing initiative. What role can the state play in this? Is it mostly a cheerleader, bringing people together, or are there specifics in terms of economic development programs?

TAMASI: There are five major points under the state’s advance manufacturing collaborative: promoting manufacturing, workforce education training, access to capital, technical assistance and innovation, and cost of doing business.

BLUESTONE: The state actually does a lot for manufacturing. But it’s often very difficult for the smaller firms, the firms not as big as Mike’s, but with 10 employees, 20 employees, to access these things. If you look at the workforce training grants that Mike has just accessed, 67 percent, or two-thirds, of all firms with more than 100 employees have accessed these. But only 10 percent of firms with under 20 employees have. Using R&D tax credits, over half of firms with more than 100 workers have done so, and 30 percent of those with 20 to 100 workers have, but only 7 percent of the small firms have done this. I think part of the problem is it’s cumbersome. If you have a larger company you have some staff that you can set aside, and say, hey, fill out all of this paperwork. We have to figure out a way of making those kinds of programs more easily accessible to the small or middle-size firm. That will allow them to improve their productivity, to do the training, to create new products and so forth.

CW: One thing I found interesting in the report was that Massachusetts manufacturers are much more dependent on the European market than manufacturers nationally. It accounts for 40 percent of Massachusetts sales versus 18 percent nationally, so more than double the national share. What makes Europe a much bigger market for us, and does it mean manufacturers here are much more vulnerable to convulsions in the European economy, of which there have been a few lately?

TAMASI: I think people are a bit skittish about what’s going on in Europe right now.

CW: Why is our market so much more Euro-centric?

BLUESTONE: It’s across our pond. Our manufacturers are closer to Europe than any other part of the United States, and so we’ve taken advantage of that. Europe’s problems will have some impact on us, more so than the rest of the country. When you look at some of the European sectors that are very strong, they’re aerospace-related because of the Airbus, they’re related to autos, a lot of machining, machine tool, metal working, plastics extrusion. That’s what we’re very good at.

CW: If we’re at a point now where we’re seeing that the remaining firms are more technologically intensive, paying higher wages, but mostly keeping pace in employment levels even with these huge productivity gains, does that qualify as a glass half-full situation?

BLUESTONE: I think the way to think about it is, can manufacturing be a critical and significant and substantial part of the Massachusetts economy? Yes. Will other sectors grow faster? Absolutely. But no one should sneeze at a quarter of a million jobs in an economy with three million